A Management Firm’s Piece Of Open-Ended Pie

by David Jenyns on August 29, 2008

Open-end investment companies usually have contracts with a management firm. This organization provides investment advice on a fee basis. The management companies also generally are the underwriters or “sponsors” of the fund or group of funds.

Beginning with the spring of 1959, a number of the owners of management companies sold part of their stock through public offerings. For example, management costs do not differ substantially when the assets of a fund have risen from $100 to $300 million.

Whatever the merits of management firm shares, they are entirely different from investment company shares. Management companies do not own, directly or indirectly, the securities of the funds, which they manage or sell. Management companies depend on advisory fees and commissions; the shares of their companies do not increase in value merely because of general industrial and economic growth, and if redemptions were to exceed new sales, fees and commissions would shrink.

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